10 Tips to Help Your Business Avoid Commercial Litigation

An ounce of prevention, as they say, really is just sound business practice.

Commercial Litigation can be ruinously expensive, and even “win” can devour the time and energy you need to actually run your business. It also has a nasty way of damaging your most important intangible asset, your business reputation.

There is no reason to step away from an unavoidable fight, but the advice all our commercial litigation lawyers give their Sydney clients is to avoid finding themselves there. Following are 10 remarkably simple steps you can take to protect your business from the risks of becoming needlessly embroiled in commercial litigation.

Structure your business to protect important assets.

Most business people understand that the peril of doing business as a sole proprietor is that personal assets can be reached by business creditors. There are few, if any, situations in which that is a reasonable risk.

It is important, however, to go a step farther, perhaps structuring your business into several entities in order to shield important assets, such as intellectual property or real estate from the greatest sources of risk, whatever they may be.

Business relationships should be covered by written contracts, which should be reviewed by an attorney.

Without laboring the obvious, make sure that you read and understand all contracts to which you are a party. Ask for clarification of points about which you are unsure or which may require further negotiation.

Remember that employment contracts may be appropriate for key employees. Consider whether nondisclosure or non-competition agreements would be appropriate.

Contracts are especially important in international transactions where, practically speaking, you may not be able to bring the other party into Australian courts. This is when escrows, indemnity clauses, liquidated damage agreements and insurance can be essential.

Apropos of which, make sure that your insurance coverage is appropriate to your business risks.

It is not just a question of amount, but of the kind of coverage that your business carries.

Keep good records.

Many commercial disputes can be avoided by being able to quickly produce the relevant documents. These should include contractual agreements as well as correspondence and notes taken contemporaneously to record the substance of conversations and telephone calls. This may be a good time to review your records retention policy and to ensure that important documents exist in both electronic form and hard copy.

Train and manage staff.

Do annual or more frequent reviews and be prepared to terminate the employment of any individual whose conduct could subject the business to a law suit. Make sure that you have systems and procedures in place to help you identify dishonest conduct.

Prompt and effective communication can do a lot to diffuse a situation with an unhappy customer or business partner. If the shoe is on the other foot and the dispute is about a nonpaying buyer or client, negotiating a payment schedule is often far cheaper and more effective than a lawsuit.

Choose who you do business with.

Especially for new businesses, the temptation can be to take any client or embrace any potential partner who walks through the door. Taking the time to know a little more about those you depend on, whether it is a big client, an important vendor or a co-venturer is usually worthwhile. Disentangling an unwise business relationship can be very troublesome.

A periodic retrospective review of disputes – who they involved on both sides and what kind of transactions gave rise to them – may help your business identify areas for improvement. For example, you may be able to identify problems with the terms of standard contracts, poor internal communication or a failure to properly handle complaints.

Nothing personal; it’s just business.

It can be difficult for someone who has nurtured a business from the start to separate the personal from the commercial. If you find yourself arguing about principle, back down, turn around and hand the matter off to someone else who can be objective.

Don’t be a jerk.

This is really a corollary of the previous two rules. Be honest in evaluating your own actions because no one has the luxury of being right all the time. Try to understand the dispute from the other side and made adjustments or amends as necessary.

If you are dealing with a genuinely impossible individual, don’t be goaded into a fight. You can choose who you do business with and in some cases, the better choice may be to politely decline from additional orders or jobs.

Commercial Litigation may, in some circumstances, be a necessary evil, but where your business has the opportunity to avoid recourse to the courts, it should. Furthermore, it can, by adopting 10 relatively simple good business practices.